ZIONS BANCORPORATION NATIONAL ASSOCIATION UT
For the period ended Jun 30, 2024. Filed Aug 7, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 7, 2024
ZION$64.76-0.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-08.
0000109380-24-000108
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-07.
0000109380-24-000124
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 269 previous paragraphs and 280 current paragraphs.
158 unchanged; 87 reworded; 30 added; 18 removed; 6 previous and 5 current paragraphs rearranged.
Tables are not compared: 37 previous and 43 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (30)
Current report
Factors that could cause our actual results, performance or achievements, industry trends, or regulatory outcomes to differ materially from those expressed or implied in the forward-looking statements are discussed in our 2023 Form 10-K and subsequent filings with the Securities and Exchange Commission (“SEC”), and are available on our website (www.zionsbancorporation.com) and from the SEC (www.sec.gov).
Current report
Second Quarter 2024 Financial Performance
Current report
•Net interest income increased $6 million, or 1%, relative to the prior year period, as higher earning asset yields were partially offset by higher funding costs. The net interest margin was 2.98%, compared with 2.92%.
Current report
•Customer-related noninterest income decreased $8 million, or 5%, driven largely by declines in capital markets fees, including loan syndications, swaps, and other related fees. Decreases in noncustomer-related noninterest income were due largely to higher gains in the prior year period associated with the sale of bank-owned property and higher dividends on Federal Home Loan Bank (“FHLB”) stock. During the current quarter, dividends and other income benefited from a $9 million gain on the sale of our Enterprise Retirement Solutions business and a $4 million gain on the sale of a bank-owned property.
Current report
•Noninterest expense remained relatively stable at $509 million. An increase in technology, telecom, and information processing expense, driven largely by increases in software amortization expenses associated with the replacement of our core loan and deposit banking systems, was partially offset by a decrease in salaries and employee benefits expense, primarily due to higher severance expense in the prior year period.
Current report
The Allowance and Provision for Credit Losses
Current report
Customer-related noninterest income decreased $8 million, or 5%, compared with the prior year period. The decrease was driven primarily by declines in capital markets fees, including loan syndications, swaps, and other related fees.
Current report
Adjusted noninterest expense increased $12 million, or 2%. The efficiency ratio was 64.5%, compared with 62.5% in the prior year period, primarily due to the increase in adjusted noninterest expense and a decrease in adjusted taxable-equivalent revenue, the latter of which was largely driven by a decline in customer-related fees. For information on non-GAAP financial measures, see page 38.
Current report
At June 30, 2024, our AFS investment securities portfolio included $193 million of net premium that was distributed across the various security categories. Total taxable-equivalent premium amortization for our total investment securities portfolio was $17 million for the second quarter of 2024, compared with $22 million for the same prior year period.
Current report
We have been investing in technology to modernize our financial systems. In July 2024, we successfully completed the final phase of our multi-year project to replace our core loan and deposit banking systems. We have now transitioned substantially all of our commercial, commercial real estate, and consumer loans, as well as our deposit accounts to a modern, integrated core system, which will allow us to deliver improved experiences to our customers and gain incremental operational efficiencies.
Current report
COMMERCIAL LENDING PORTFOLIO
Current report
Our commercial loans span various industries and generally mature within a one-to-five-year period with applicable amortization based on the underlying collateral and guarantees. Commercial loans are typically structured as seasonal, term, working capital, or bridge loans in the form of revolving and non-revolving lines of credit, amortizing term loans, guidance facilities, and single-payment loans. These loans include covenants requiring borrowers to provide regular financial reporting to measure leverage, debt service coverage, and liquidity. At June
Current report
Underwriting of commercial loans is primarily based on analyses of management, financial performance, industry, sponsorship (if applicable), and transaction structure, with credit enhancements typically provided by collateral and guarantees from the owners or sponsors. Prospective cash flows are subjected to various downside scenario analyses, including revenue decline, margin compression, and interest rate movements.
Current report
The following schedule presents the geography distribution of our commercial lending portfolio. For commercial loans, geographies are based on the location of the primary borrower.
Current report
COMMERCIAL LENDING BY GEOGRAPHY
Current report
The following schedule presents an industry distribution of our commercial lending portfolio. Industry classification is based on the North American Industry Classification System.
Current report
Commercial Real Estate Lending
Current report
The following schedule presents the composition of our commercial real estate lending portfolio:
Current report
COMMERCIAL REAL ESTATE LENDING PORTFOLIO
Current report
The following schedule presents the geography distribution of our commercial real estate lending portfolio. Geographies are based on the location of the primary collateral.
Current report
The following schedule presents our commercial real estate lending portfolio by the type of collateral:
Current report
Multi-family CRE
Current report
Office CRE
Current report
1 Other included $17 million of office CRE loans with collateral located in Georgia at both June 30, 2024 and December 31, 2023.
Current report
Consumer Lending
Current report
The following schedule presents the composition of our consumer lending portfolio:
Current report
CONSUMER LENDING PORTFOLIO
Current report
The following schedule presents the geography distribution of our consumer lending portfolio. Geographies are based on the location of the primary borrower.
Current report
CONSUMER LENDING BY GEOGRAPHY
Current report
1 Excluding both the $9 million gain on sale of our Enterprise Retirement Solutions business and the $4 million gain on sale of a bank-owned property (recorded in dividends and other income), the efficiency ratio for the three months and six months ended June 30, 2024 would have been 65.6% and 66.7%, respectively.
Removed paragraphs (18)
Previous report
First Quarter 2024 Financial Performance
Previous report
•Net interest income decreased $93 million, or 14%, relative to the prior year period, as higher funding costs more than offset higher earning asset yields. The net interest margin was 2.94%, compared with 3.33%, and was up from 2.91% in the fourth quarter of 2023. Net interest income was also impacted by reduced interest-earning assets and an increase in interest-bearing liabilities.
Previous report
•Customer-related noninterest income remained flat at $151 million, as an increase in capital markets fees was offset by a decrease in loan-related fees and income. Decreases in noncustomer-related noninterest income were due largely to higher mark-to-market valuation adjustments related to servicing rights in the prior year quarter, a decrease in dividends on Federal Home Loan Bank (“FHLB”) stock, and a valuation loss associated with one of our equity investments in the current period.
Previous report
•Noninterest expense increased $14 million, or 3%, driven largely by an increase in deposit insurance and regulatory expense, which included a $13 million accrual associated with an updated special assessment estimate by the Federal Deposit Insurance Corporation (“FDIC”) during the quarter. This increase was partially offset by a decrease in salaries and employee benefits expense, primarily due to a decline in incentive compensation accruals.
Previous report
Provision for Credit Losses
Previous report
Customer-related noninterest income remained flat at $151 million. An increase in capital markets fees, driven largely by improved real estate capital markets and securities underwriting activity, was offset by a decrease in loan-related fees and income, primarily due to higher gains on loan sales in the prior year period and a decline in loan servicing income resulting from the sale of associated mortgage servicing rights in the third quarter of 2023.
Previous report
Total noninterest expense increased $14 million, or 3%, relative to the prior year quarter. Deposit insurance and regulatory expense increased $16 million, driven largely by a $13 million accrual associated with an updated special assessment estimate by the FDIC during the current quarter, which was related to the bank closures in early 2023.
Previous report
Visa Class B Shares
Previous report
In 2007, we received 460,153 non-transferable Class B shares of Visa, Inc. in connection with a restructuring and public offering by Visa U.S.A. These shares are carried at no cost on our consolidated balance sheet. In January 2024, Visa’s previously announced exchange offer proposal was approved by common stockholders, which resulted, among other actions, in a redenomination of all Visa Class B common shares to Class B-1 common shares. In April 2024, Visa commenced its exchange offer allowing Class B-1 shareholders the option to exchange up to 50% of their Class B-1 shares for shares that would be convertible into freely transferable Visa Class A common shares following a temporary restriction period. We did not participate in the exchange offer, which expired on May 3, 2024, in view of contingent obligations associated with certain make-whole provisions required as a condition of the exchange.
Previous report
We are in the final phase of a three-phase project to replace our core loan and deposit banking systems. This final phase includes the replacement of our deposit banking systems through multiple affiliate bank conversions. The first and second conversions were successfully completed in May 2023 and April 2024, respectively. We anticipate completing the migration of substantially all of the remaining accounts by late summer 2024.
Previous report
The following schedule provides information regarding lending exposures to certain industries in our commercial lending portfolio:
Previous report
1 Industry groups are determined by North American Industry Classification System (“NAICS”) codes.
Previous report
Commercial Real Estate Loans
Previous report
At March 31, 2024 and December 31, 2023, our CRE loan portfolio totaled $13.6 billion and $13.4 billion, respectively, representing 23% of the total loan portfolio for both periods. The majority of our CRE loans are secured by real estate primarily located within our geographic footprint. The following schedule presents the geographic distribution of our CRE loan portfolio based on the location of the primary collateral:
Previous report
Multi-family
Previous report
OFFICE CRE LOAN PORTFOLIO
Previous report
1 No other geography exceeded $17 million at both March 31, 2024 and December 31, 2023.
Previous report
Consumer Loans
Reworded paragraphs (87)
Previous wording
•The effects of newly enacted and proposed regulations affecting us and the banking industry, as well as changes and uncertainties in applicable laws, and fiscal, monetary, regulatory, trade, and tax policies, and actions taken by governments, agencies, central banks, and similar organizations, including those that result in decreases in revenue; increases in capital standards; and increases in insurance assessments and other bank expenses;
Current wording
•The effects of newly enacted and proposed regulations affecting us and the banking industry, as well as changes and uncertainties in applicable laws, and fiscal, monetary, regulatory, trade, and tax policies, and actions taken by governments, agencies, central banks, and similar organizations, including those that result in decreases in revenue; increases in bank fees, insurance assessments and capital standards; and other regulatory requirements;
Previous wording
•Our ability to provide adequate oversight of our suppliers or prevent inadequate performance by third parties upon whom we rely for the delivery of various products and services;
Current wording
•Our ability to provide adequate oversight of our suppliers to help us prevent or mitigate effects upon us and our customers of inadequate performance, systems failures, or cyber and other incidents by or affecting third parties upon whom we rely for the delivery of various products and services;
Previous wording
•Natural disasters, pandemics, catastrophic events and other emergencies and incidents and their impact on our and our customer’s operations and business and communities, including the increasing difficulty in, and the expense of, obtaining adequate insurance at reasonable prices;
Current wording
•Natural disasters, pandemics, catastrophic events and other emergencies and incidents and their impact on our and our customers’ operations and business and communities, including the increasing difficulty in, and the expense of, obtaining property, auto, business, and other insurance products;
Previous wording
•The possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and shareholders’ equity, but not on our regulatory capital;
Current wording
•The possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and shareholders’ equity;
Previous wording
Adjusted noninterest expense remained relatively flat at $511 million. The efficiency ratio was 67.9%, compared with 59.9%, primarily due to a decline in adjusted taxable-equivalent revenue. For information on non-GAAP financial measures, see page 35.
Current wording
1 For information on non-GAAP financial measures, see page 38.
Previous wording
Our financial results in the first quarter of 2024 reflected low net charge-offs, reduced net interest income, loan growth, and sequential improvement of the net interest margin (“NIM”). Diluted earnings per share (“EPS”) was $0.96, compared with $1.33 in the first quarter of 2023, as lower revenue and slightly higher noninterest expense was partially offset by a lower provision for credit losses.
Current wording
Our financial results in the second quarter of 2024 reflected continued improvement in our net interest margin (“NIM”), growth in customer deposits and loans, and low net charge-offs. Diluted earnings per share (“EPS”) was $1.28, compared with $1.11 in the second quarter of 2023, as higher net interest income and a lower provision for credit losses were partially offset by lower noninterest income.
Previous wording
◦Average interest-earning assets decreased $2.2 billion, or 3%, driven by declines in average securities and average money market investments, partially offset by an increase in average loans and leases.
Current wording
◦Average interest-earning assets decreased slightly by $0.4 billion, as the decline in average securities exceeded the growth in average loans and leases and average money market investments.
Previous wording
◦Total loans and leases increased $1.8 billion, or 3%, primarily due to growth in the consumer 1-4 family residential mortgage and commercial real estate (“CRE”) multi-family and industrial construction loan portfolios.
Current wording
◦Total loans and leases increased $1.5 billion, or 3%, primarily due to growth in the consumer 1-4 family residential mortgage and the term commercial real estate (“CRE”) loan portfolios.
Previous wording
◦Average interest-bearing liabilities increased $6.0 billion, or 12%, driven by an increase in average interest-bearing deposits, partially offset by a decline in average borrowed funds.
Current wording
◦Average interest-bearing liabilities increased $3.4 billion, or 7%, driven by an increase in average interest-bearing deposits, partially offset by a decline in average borrowed funds.
Previous wording
◦Total deposits increased $5.0 billion, or 7%, as an increase in interest-bearing deposits was partially offset by a decrease in noninterest-bearing demand deposits. Customer deposits (excluding brokered deposits) totaled $69.9 billion, compared with $63.8 billion at March 31, 2023, and included approximately $7.5 billion of reciprocal deposits at March 31, 2024.
Current wording
◦Total deposits decreased $0.6 billion, or 1%, as a decrease in noninterest-bearing demand deposits was partially offset by an increase in interest-bearing deposits. Customer deposits (excluding brokered deposits) increased $3.6 billion, or 5%, to $69.5 billion, compared with $65.9 billion.
Previous wording
•The provision for credit losses was $13 million, compared with $45 million in the prior year period.
Current wording
•The provision for credit losses was $5 million, compared with $46 million in the prior year period.
Previous wording
•Net loan and lease charge-offs totaled $6 million, or 0.04% of average loans, compared with zero net charge-offs in the prior year quarter. Classified loans increased $54 million, or 6%. Nonperforming assets increased to $254 million, or 0.44%, compared with $173 million, or 0.31%, of loans and leases, primarily due to a small number of loans in the commercial and industrial and term commercial real estate portfolios.
Current wording
•Net loan and lease charge-offs totaled $15 million, or 0.10% of average loans, compared with $13 million, or 0.09%, in the prior year quarter. Classified loans totaled $1.3 billion, or 2.16%, compared with $768 million, or 1.35%, of total loans and leases, and nonperforming assets were $265 million, or 0.45%, compared with $164 million, or 0.29%, of total loans and leases. The increases in classified loans and nonperforming assets were primarily due to a small number of loans in the commercial and industrial and term commercial real estate portfolios.
Previous wording
•Total borrowed funds, consisting primarily of secured borrowings, decreased $7.3 billion, or 57%, from the prior year quarter, due largely to an increase in interest-bearing deposits and a decrease in interest-earning assets.
Current wording
•Total borrowed funds, consisting primarily of secured borrowings, increased $146 million, or 2%, from the prior year quarter, primarily due to an increase in short-term borrowings.
Previous wording
1 Includes interest income recoveries of $2 million for both the three months ended March 31, 2024, and 2023.
Current wording
1 Includes interest income recoveries of $2 million for both the three months ended, and $4 million for both the six months ended June 30, 2024, and 2023, respectively.
Previous wording
Net interest income accounted for approximately 79% of our net revenue (net interest income plus noninterest income) for the current quarter and decreased $93 million, or 14%, relative to the prior year quarter, as higher funding costs more than offset higher earning asset yields. The NIM was 2.94%, compared with 3.33%, and was up from 2.91% in the fourth quarter of 2023.
Current wording
Net interest income accounted for approximately 77% of our net revenue (net interest income plus noninterest income) for the current quarter and increased $6 million, or 1%, relative to the prior year quarter, as higher earning asset yields were partially offset by higher funding costs. The NIM was 2.98%, compared with 2.92%.
Previous wording
The yield on average interest-earning assets was 5.25% in the first quarter of 2024, an increase of 76 basis points (“bps”), reflecting higher interest rates and a favorable mix change to higher-yielding assets. The yield on average loans and leases increased 76 bps to 6.06%, and the yield on average securities increased 38 bps to 2.84% in the first quarter of 2024.
Current wording
The yield on average interest-earning assets was 5.31% in the second quarter of 2024, an increase of 50 basis points (“bps”), reflecting higher interest rates and a favorable mix change to higher yielding assets, as average securities decreased while average loans increased. The yield on average loans and leases increased 46 bps to 6.11%, and the yield on average securities increased 34 bps to 2.90% in the second quarter of 2024.
Previous wording
The rate paid on total deposits and interest-bearing liabilities was 2.34%, compared with 1.17% in the prior year quarter, and the cost of total deposits was 2.06%, compared with 0.47%, also reflecting the higher interest rate environment as well as reduced noninterest-bearing deposits.
Current wording
The rate paid on total deposits and interest-bearing liabilities was 2.36%, compared with 1.88% in the prior year quarter, and the cost of total deposits was 2.11%, compared with 1.27%, reflecting the higher interest rate environment as well as reduced noninterest-bearing deposits.
Previous wording
Net interest income was also impacted by reduced interest-earning assets and an increase in interest-bearing liabilities. Average interest-earning assets decreased $2.2 billion, or 3%, from the prior year quarter, driven by declines of $2.5 billion and $1.5 billion in average securities and average money market investments, respectively. The decrease in average securities was primarily due to principal reductions. These decreases were partially offset by an increase of $1.8 billion in average loans and leases.
Current wording
Average interest-earning assets decreased slightly by $0.4 billion from the prior year quarter, as growth of $1.6 billion in average loans and leases and $0.2 billion in average money market investments, was more than offset by a decline of $2.2 billion in average securities. The decrease in average securities was primarily due to principal reductions.
Previous wording
Average interest-bearing liabilities increased $6.0 billion, or 12%, from the prior year quarter, driven by an increase of $12.0 billion in average interest-bearing deposits, as customers moved from noninterest-bearing to interest-bearing products in response to the higher interest rate environment. This increase was partially offset by a decrease of $6.0 billion in average borrowed funds.
Current wording
Average interest-bearing liabilities increased $3.4 billion, or 7%, from the prior year quarter, driven by an increase of $9.2 billion in average interest-bearing deposits, primarily due to customer deposit growth as well as customers moving from noninterest-bearing to interest-bearing products in response to the higher interest rate environment. This increase was partially offset by a decrease of $5.8 billion in average borrowed funds.
Previous wording
Average loans and leases increased $1.8 billion, or 3%, to $57.9 billion, primarily due to growth in average consumer and commercial real estate loans. Average securities decreased $2.5 billion, or 11%, to $20.4 billion, primarily due to available-for-sale (“AFS”) securities principal reductions.
Current wording
Average loans and leases increased $1.6 billion, or 3%, to $58.3 billion, primarily due to growth in average consumer and commercial real estate loans. Average securities decreased $2.2 billion, or 10%, to $19.8 billion, primarily due to available-for-sale (“AFS”) securities principal reductions.
Previous wording
Average deposits increased $3.2 billion, or 5%, to $73.4 billion at an average cost of 2.06%, from $70.2 billion at an average cost of 0.47% in the first quarter of 2023. Average noninterest-bearing deposits as a percentage of total deposits decreased to 35%, compared with 49% during the same prior year period. The loan-to-deposit ratio was 78%, compared with 81% in the prior year quarter.
Current wording
Average deposits increased $4.5 billion, or 7%, to $74.2 billion at an average cost of 2.11%, from $69.7 billion at an average cost of 1.27% in the second quarter of 2023. Average noninterest-bearing deposits as a percentage of total deposits decreased to 34%, compared with 43% during the same prior year period. The loan-to-deposit ratio based on end-of-period balances was 79%, compared with 77% in the prior year quarter.
Previous wording
Average borrowed funds, consisting primarily of secured borrowings, decreased $6.0 billion, or 45%, to $7.2 billion, due largely to an increase in interest-bearing deposits and a decrease in interest-earning assets.
Current wording
Average borrowed funds, consisting primarily of secured borrowings, decreased $5.8 billion, or 46%, to $6.8 billion, primarily due to a reduction in wholesale funding needs as a result of an increase in interest-bearing deposits.
Previous wording
The ACL was $736 million at March 31, 2024, compared with $678 million at March 31, 2023. The increase in the ACL primarily reflects incremental reserves associated with portfolio-specific risks including commercial real estate and modest deterioration in credit quality, partially offset by improvements in economic forecasts. The ratio of ACL to total loans and leases was 1.27% and 1.20% at March 31, 2024 and 2023, respectively. The provision for securities losses was less than $1 million during both the first quarter of 2024 and 2023.
Current wording
The ACL was $726 million at June 30, 2024, compared with $711 million at June 30, 2023. The year-over-year increase in the ACL primarily reflects incremental reserves associated with portfolio-specific risks including commercial real estate, declines in credit quality, and average loan growth of $1.6 billion, partially offset by improvements in economic forecasts, changes in our loan portfolio composition, and declines in unfunded lending commitments related to construction lending. The ratio of ACL to total loans and leases was 1.24% and 1.25% at June 30, 2024 and 2023, respectively.
Previous wording
The provision for credit losses, which is the combination of both the provision for loan and lease losses and the provision for unfunded lending commitments, was $13 million, compared with $45 million in the first quarter of 2023.
Current wording
The provision for credit losses, which is the combination of both the provision for loan and lease losses and the provision for unfunded lending commitments, was $5 million, compared with $46 million in the second quarter of 2023. The provision for securities losses was less than $1 million during both the second quarter of 2024 and 2023.
Previous wording
The bar chart above illustrates the broad categories of change in the ACL from the prior year period. To estimate current expected losses, we use econometric loss models that include multiple economic scenarios that reflect optimistic, baseline, and stressed economic conditions. The results derived using these economic scenarios are weighted to produce the credit loss estimate. Management may adjust the weights to reflect their assessment of current conditions and reasonable and supportable forecasts. The second bar represents changes in these economic forecasts and current economic conditions, including management's judgment of the weighting of the economic forecasts. These changes contributed to a $90 million decrease in the ACL from the prior year quarter.
Current wording
The bar chart above illustrates the broad categories of change in the ACL from the prior year period. To estimate current expected losses, we use econometric loss models that include multiple economic scenarios that reflect optimistic, baseline, and stressed economic conditions. The results derived using these economic scenarios are weighted to produce the credit loss estimate. Management may adjust the weights to reflect their assessment of current conditions and reasonable and supportable forecasts. The second bar represents changes in these economic forecasts and current economic conditions, including management's judgment of the weighting of the economic forecasts during the current quarter. These changes contributed to a $132 million decrease in the ACL from the prior year quarter.
Previous wording
The third bar represents changes in credit quality factors and includes risk-grade migration, portfolio-specific risks, and specific reserves against loans, which, when combined, contributed to a $193 million increase in the ACL, driven largely by an increased focus on certain portfolio-specific risks, including commercial real estate.
Current wording
The third bar represents changes in credit quality factors and includes risk grade migration, portfolio-specific risks, and specific reserves against loans, which, when combined, contributed to a $222 million increase in the ACL, driven largely by an increased focus on certain portfolio-specific risks, including commercial real estate.
Previous wording
The fourth bar represents changes in our loan portfolio composition, including changes in loan balances, the aging of the portfolio, and other qualitative risk factors; all of which contributed to a $45 million decrease in the ACL.
Current wording
The fourth bar represents changes in our loan portfolio composition, including changes in loan balances and mix, the aging of the portfolio, and other qualitative risk factors; all of which contributed to a $75 million decrease in the ACL.
Previous wording
Total noninterest income decreased $4 million, or 3%, relative to the prior year. Noninterest income accounted for approximately 21% and 19% of our net revenue (net interest income plus noninterest income) during the first quarter of 2024 and 2023, respectively. The following schedule presents a comparison of the major components of noninterest income:
Current wording
Total noninterest income decreased $10 million, or 5%, relative to the prior year. Noninterest income accounted for approximately 23% and 24% of our net revenue (net interest income plus noninterest income) during the second quarter of 2024 and 2023, respectively. The following schedule presents a comparison of the major components of noninterest income:
Previous wording
Noncustomer-related noninterest income decreased $4 million from the prior year quarter. Dividends and other income decreased $5 million, primarily due to higher mark-to-market valuation adjustments related to servicing rights in the prior year quarter and a decrease in dividends on FHLB stock. Net securities gains decreased $3 million, due to a $4 million valuation loss associated with one of our equity investments in the current period. These decreases were offset by a $4 million increase in fair value and nonhedge derivative income, primarily due to credit valuation adjustments on client-related interest rate swaps.
Current wording
Noncustomer-related noninterest income decreased $2 million from the prior year quarter. Dividends and other income decreased $4 million, largely due to a $13 million gain in the prior year period associated with the sale of bank-owned property and higher dividends on FHLB stock. During the current quarter, dividends and other income benefited from a $9 million gain on the sale of our Enterprise Retirement Solutions business and a $4 million gain on the sale of a bank-owned property. Fair value and nonhedge derivative income decreased $2 million, primarily due to credit valuation adjustments on client-related interest rate swaps. These decreases were partially offset by an increase of $4 million in net securities gains driven by valuation adjustments in our Small Business Investment Company (“SBIC”) investment portfolio.
Previous wording
Technology, telecom, and information processing expense increased $7 million, or 13%, primarily due to increases in software amortization expenses associated with the replacement of our core loan and deposit banking systems, as well as other related application software, license, and maintenance expenses. Salaries and employee benefits expense decreased $8 million, or 2%, primarily due to a decline in incentive compensation accruals.
Current wording
Total noninterest expense remained relatively stable at $509 million. Technology, telecom, and information processing expense increased $8 million, or 14%, primarily due to increases in software amortization expenses associated with the replacement of our core loan and deposit banking systems, as well as other related application software, license, and maintenance expenses. Salaries and employee benefits expense decreased $6 million, or 2%, primarily due to higher severance expense during the prior year period.
Previous wording
Total technology spend decreased $4 million, or 3%, relative to the prior year quarter, as the aforementioned increase in technology, telecom, and information processing expense was offset by a decrease in certain technology investments, as the replacement of our core loan and deposit banking systems nears completion in 2024.
Current wording
Total technology spend decreased $5 million, or 4%, relative to the prior year quarter, as an increase in other technology-related expense and the aforementioned increase in technology, telecom, and information processing expense was more than offset by a decrease in certain technology investments, as the final phase of our three-phase project to replace our core loan and deposit banking systems was completed in July 2024.
Previous wording
The effective tax rate was 24.6% and 27.7% for the three months ended March 31, 2024 and 2023, respectively. The higher effective tax rate in the prior year period was the result of a change in a discrete item that affected the reserve for uncertain tax positions. See Note 12 of the Notes to Consolidated Financial Statements for more information about the factors that impacted the income tax rates, as well as information about deferred income tax assets and liabilities.
Current wording
The effective tax rate was 23.3% and 22.6% for the three months ended June 30, 2024 and 2023, respectively. See Note 12 of the Notes to Consolidated Financial Statements for more information about the factors that impacted the income tax rates, as well as information about deferred income tax assets and liabilities.
Previous wording
Preferred stock dividends totaled $10 million and $6 million for the first quarter of 2024 and 2023, respectively. The increase was primarily due to changes in the timing and rates of dividend payments for certain series of preferred stock.
Current wording
Preferred stock dividends totaled $11 million and $9 million for the second quarter of 2024 and 2023, respectively. The increase was primarily due to changes in the timing and rates of dividend payments for certain series of preferred stock.
Previous wording
We invest in securities to actively manage liquidity and interest rate risk and to generate interest income. We primarily own securities that can readily provide us cash and liquidity through secured borrowing agreements without the need to sell the securities. Our fixed-rate securities portfolio helps balance the inherent interest rate mismatch between loans and deposits and protects the economic value of shareholders’ equity. At March 31, 2024, the estimated duration, which measures price sensitivity to interest rate changes, of our securities portfolio was 3.6 percent, unchanged from December 31, 2023.
Current wording
We invest in securities to actively manage liquidity and interest rate risk and to generate interest income. We primarily own securities that can readily provide us cash and liquidity through secured borrowing agreements without the need to sell the securities. Our fixed-rate securities portfolio helps balance the inherent interest rate mismatch between loans and deposits and protects the economic value of shareholders’ equity. At June 30, 2024, the estimated duration of our securities portfolio, which measures price sensitivity to interest rate changes, was 3.7 percent, compared with 3.6 percent at December 31, 2023.
Previous wording
The amortized cost of total held-to-maturity (“HTM”) and AFS investment securities decreased $480 million, or 2%, from December 31, 2023. Approximately 8% and 7% of the total HTM and AFS investment securities were floating-rate instruments at March 31, 2024 and December 31, 2023, respectively. Additionally, at March 31, 2024, we have $3.6 billion of pay-fixed swaps designated as fair value hedges against fixed-rate AFS securities that effectively convert the fixed interest income to a floating rate on the hedged portion of the securities. At March 31, 2024, total taxable-equivalent premium amortization for our investment securities was $17 million for the first quarter of 2024, compared with $26 million for the same prior year period.
Current wording
The amortized cost of total held-to-maturity (“HTM”) and AFS investment securities decreased $1.0 billion, or 5%, from December 31, 2023. Approximately 7% of the total HTM and AFS investment securities were floating-rate instruments at both June 30, 2024 and December 31, 2023. Additionally, at June 30, 2024, we had $3.6 billion of pay-fixed swaps designated as fair value hedges against fixed-rate AFS securities that effectively convert the fixed interest income to a floating rate on the hedged portion of the securities.
Previous wording
In addition to HTM and AFS securities, we also have a trading securities portfolio, comprised of municipal securities, which totaled $59 million at March 31, 2024, compared with $48 million at December 31, 2023.
Current wording
In addition to HTM and AFS securities, we also have a trading securities portfolio, comprised of municipal securities, which totaled $24 million at June 30, 2024, compared with $48 million at December 31, 2023.
Previous wording
Our municipal loans and securities are primarily associated with municipalities located within our geographic footprint. The municipal loan and lease portfolio is primarily secured by general obligations of municipal entities. Other types of collateral also include real estate, revenue pledges, or equipment. At March 31, 2024, we had no municipal loans on nonaccrual.
Current wording
Our municipal loans and securities are primarily associated with municipalities located within our geographic footprint. The municipal loan and lease portfolio is primarily secured by general obligations of municipal entities, real estate, revenue pledges, or equipment. At June 30, 2024, we had $6 million of municipal loans on nonaccrual, and we had no municipal loans on nonaccrual at December 31, 2023.
Previous wording
At March 31, 2024 and December 31, 2023, the ratio of loans and leases to total assets was 67% and 66%, respectively. The largest loan category was commercial and industrial loans, which constituted 28% and 29% of our total loan portfolio for the same respective periods.
Current wording
During the first six months of 2024, the loan and lease portfolio increased $636 million, or 1%, to $58.4 billion at June 30, 2024. Loan growth was primarily in the consumer 1-4 family residential mortgage and term commercial real estate loan portfolios. At June 30, 2024 and December 31, 2023, the ratio of loans and leases to total assets was 67% and 66%, respectively. The largest loan category was commercial and industrial loans, which constituted 29% of our total loan portfolio for both time periods.
Previous wording
Other noninterest-bearing investments decreased $28 million, or 3%, during the first three months of 2024, primarily due to a $34 million decrease in FHLB stock. We are required to invest approximately 4% of our FHLB borrowings in FHLB stock to maintain our borrowing capacity. The decrease in period-end FHLB activity stock was driven largely by an increase in interest-bearing deposits and a decrease in interest-earning assets.
Current wording
Other noninterest-bearing investments increased $37 million, or 4%, during the first six months of 2024, primarily due to a $25 million increase in FHLB stock, and an $8 million increase in SBIC investments. We are required to invest approximately 4% of our FHLB borrowings in FHLB stock to maintain our borrowing capacity. The increase in period-end FHLB activity stock was due to an increase in short-term FHLB borrowings.
Previous wording
The following schedule summarizes the capitalized costs associated with our core system replacement project, which are depreciated using a useful life of ten years:
Current wording
The following schedule summarizes the capitalized costs associated with our core system replacement project, which are amortized using a useful life of ten years:
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1 Taxable-equivalent rates used where applicable.
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2 Net of unamortized purchase premiums, discounts, and deferred loan fees and costs.
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The following schedule presents the composition of our commercial lending portfolio:
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30, 2024, approximately 69% of our commercial lending portfolio was variable-rate, and approximately 10% of these variable-rate loans were swapped with our customers to a fixed rate.
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December 31, 2024, and another $1.5 billion maturing on January 15, 2025. These advances may be prepaid at any time without penalty. For more information on our liquidity risk management practices, see “Liquidity Risk Management” in our 2023 Form 10-K.
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Previous report — wording carried elsewhere
During the first three months of 2024, the loan and lease portfolio increased $330 million, or 1%, to $58.1 billion at March 31, 2024. Loan growth was driven largely by increases in consumer 1-4 family residential mortgage and term commercial real estate loans.
Previous report — wording carried elsewhere
The following schedule presents our CRE loan portfolio by collateral type:
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related to the loan and lease portfolio and unfunded lending commitments as of the balance sheet date. To determine
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the adequacy of the allowance, our loan and lease portfolio is segmented based on loan type.
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liabilities” on the consolidated balance sheet. Any related increases or decreases in the reserve are included in
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“Provision for unfunded lending commitments” on the consolidated statement of income.